Bankr. L. Rep. P 75,292 in Re Lloyd C. March, Jr., Debtor. Coastal Virginia Bank v. Lloyd C. March, Jr., Unsecured Creditors Committee, Amicus Curiae

995 F.2d 32, 1993 U.S. App. LEXIS 12905, 1993 WL 182452

Opinions

OPINION

MURNAGHAN, Circuit Judge:

Lloyd March voluntarily filed for bankruptcy under Chapter 11 on November 12, 1991, and, at times relevant-hereto, he was the debtor in possession. Coastal Virginia Bank and Sovran Bank, N.A., sought, and were denied by the bankruptcy court, relief from the automatic stay of 11 U.S.C. § 362(a). Only Coastal has appealed to the district court. The district court reversed the bankruptcy court and terminated the automatic stay. March appeals.

The issues presented are:

1) Whether the security interest Coastal took in its own stock owned by March as collateral for a loan to March is void ab initio because it violated Virginia law?

2) Whether March has standing to challenge the validity of Coastal’s lien interests?

On July 19, 1988, Coastal Virginia Bank, the appellee, lent to March, the debtor-appellant, $160,000 and simultaneously took as a security interest 16,000 shares of March’s common stock in Coastal as collateral for the loan. Nevertheless, Virginia law provided:

No bank shall make loans collaterally secured by the stock of such bank. Virginia Code § 6.1-60.1.

On or about July 19, 1988, Sovran Bank, N.A. (now NationsBank of Virginia, N.A.), purchased a one hundred percent participation interest in the Note from Coastal. Coastal nonetheless has remained the owner and holder of the Note.

The Virginia statute is clear and unambiguous in stating that a bank’s stock cannot serve as security for a loan made by that bank.

Footnotes

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* Coastal sought, by securing removal of the stay, to be in a position to make use of the 16,000 shares of its own stock to enforce a security. It should be emphasized that it is only the security and not the loan itself which March has sought to avoid. A declaration that the pledging of 16,000 shares of Coastal stock is void leaves for later decision the question whether the statute affects the loan itself. The question of whether a principal purpose of banks in general — the making of loans — is affected in any way by § 6.1-60.1 should be addressed in an entirely distinct proceeding — say one to determine whether Coastal or Sovran is an unsecured creditor for any amount remaining due under the $160,000 loan or as someone suffering from unjust enrichment.

We conclude that the designation of the 16,000 shares as security for Coastal’s $160,-000 loan was and remains void. City Coal & Ice Co. v. Union Trust Co., 140 Va. 600, 125 S.E. 697 (1924); Adams Express Co. v. Green, 112 Va. 527, 531, 72 S.E. 102, 104 (1911); National Car Advertising Co. v. Louisville & N.R. Co., 110 Va. 413, 66 S.E. (1909); Feckheimer v. National Exchange Bank, 79 Va. 80, 82-83 (1884).

Furthermore, while the resolution of the first issue may well make it unnecessary to address the second, it should be noted that, as debtor-in-possession, March is acting as a trustee for all his creditors. 11 U.S.C. §§ 1106(a), 1107(a); In re Deeb, 47 B.R. 848, 850 (B.C.N.D.Ala.1985); In re Hughes, 704 F.2d 820, 821-22 (5th Cir.1983).

Accordingly, the automatic stay being reinstated, the judgment of the district court is

REVERSED.

The dissent has sought to construe or evade the language of Virginia Code Ann. § 6.1.-60.1, and, by analogy by relying on 12 U.S.C. § 83. Those statutes each provide an exception where the loan has already first been made, and, after some lapse of time, steps are taken, including the acquisition of stock of the lending bank to improve the loan’s collectibility. The language in § 6.1-60.1 reads "except to protect itself from debts previously contracted" and "debts theretofore contracted.” The federal statute similarly permits pürchase by the lending bank of its stock "to prevent loss upon a debt previously contracted in good faith" 12 U.S.C. § 83. (Emphasis added for both statutes.) However, in the instant case, Coastal Virginia Bank, on making the $160,000 loan, simultaneously took its stock as a security interest.